EVALUATION OF THE DEVELOPMENT OF THE SLOVAK AUTOMOTIVE INDUSTRY IN

2016/2017 03.11.2017 version

- 2 -

- 3 -

1. Introduction

Automotive industry is a significant industrial sector of the Slovak economy,

production of which makes up approximately 30% of the total industrial production in

Slovakia. The following analysis of the Slovak automotive industry is based on

available information on more than 300 companies found on websites such

as www.idpap.sk, www.okba.sk, and www.finstat.sk which are compiled from publicly

available information from the Registry of Financial Statements managed by the

Ministry of Finance of the Slovak Republic available on www.registeruz.sk. Its goal is

not to create exact statistical analyses but to point out some indicators and trends in

this sector based on chosen indicators of the representative sample that might be of

interest for either a professional or non-professional community.

We also created the same view on automotive industry in the former year and our

ambition is to continue in this tradition with the aim to point out the main development

trends within the sector in the long-term.

- 4 -

2. The Development of Industrial Production

There are currently three large car companies doing business in Slovakia:

Volkswagen (Bratislava), PSA Peugeot Citroën (Trnava), and Kia Motors (Žilina).

With the arrival of these companies many doors also opened for a lot of other firms

almost all in sectors that became the suppliers of the automotive industry. The

suppliers of automotive industry are also significant contributors to the total industrial

production in Slovakia and to the labor market (job creators). As can be seen from

the following graph, production of vehicles represents a significant part of the whole

industrial production in the Slovak republic, which represents 29%. From one year to

another we notice in production a slight drop, which is probably caused by a drop in

the production of automobiles.

Chart No. 1: Comparison of the total industrial production and automotive production

Note: The economic activity called “Production of motor vehicles” includes the production of motor

vehicles, car bodies for motor vehicles, trailers, spare parts and accessories for motor vehicles,

electrical and electronic devices for motor vehicles and the production of other parts and accessories

for motor vehicles.

Volkswagen, Kia and PSA built together 1 043 237 vehicles in 2016 which makes

up for a year increase of production of 4 734 automobiles (+0,46%). Second time in

history was build more than one million of cars in Slovak Republic in one year. Of the

three companies, in 2016 Volkswagen built the most cars (388 687) which means a

year-over-year decrease of 8 771 pieces. The first place in the production of

automobiles was retained by Volkswagen in last 5 years.

PCA and KIA record an increase in year-to-year car production what can also be

seen in the following graph.

- 5 -

Chart No. 2: Comparison of car production in Slovakia over last 5 years (numbers of cars

produced)

2.3 PCA Slovakia, s.r.o.

The PCA Slovakia, s.r.o. car company has been headquartered in Trnava since 2006

and has already built more than 1,700,000 vehicles during its presence in Slovakia.

The company currently employs around 3 700 people and approximately another 500

employees are employed through agencies. Together with sub-contractors, they are

employing about 10 000 employees.

They built 4 models: Peugeot 207 (from 06/2007, with investment more than

700 000 000 €), Citroën C3 Picasso (01Q/2009, this model is built only in Slovakia

with investment about 100 000 000€), Peugeot 208 (from 11/2012, this model

replaced the old Peugeot 207 with investment about 120 000 000€). In the ond of

year 2016 they started with production of new model Citroën C3. This is the 4th model

built in Trnava(investment cca 80 000 000€).

PCA Slovakia generated a revenue of 2 499 920 thousand EUR in 2016, which

represents a year-over-year increase of +2%. PCA Slovakia, s.r.o. record a year-

over-year increase in revenues also in years 2012 (19 %), 2013 (13 %) and 2015 (17

%). The year-over-year decrease in revenues came in 2011 (-1%) as well as in and

in 2014 (-4%).

- 6 -

Chart No. 7: Revenues of PCA Slovakia, s.r.o. in the past six years

In 2016 the company PCA Slovakia, s.r.o. earned 35 382 thousand EUR, which is a

year-over-year increase in net profits of + 31%. It is the first year-over-year increase

after three year-over-year decline in net profits in a row. In the observation period the

company did not recorded a negative income.

Chart No. 8: Net income of PCA Slovakia, a.s. in the past six years

- 7 -

3. What is the Benefit of the Automotive Industry for the

Economy of Slovakia?

It has already been mentioned that the automotive industry is a significant or even a

crucial sector of our industry. Of the total industrial production, car manufacturing

represents 30%. One of the strengths is not the sole presence of the three big

companies Volkswagen, Kia and PCA but their whole supply chain and network.

There are currently 266 important or less important direct suppliers (classified as

Tier-1, Tier-2, Tier-3 according to the type of network) and 68 indirect suppliers

(classified as Other) according to the data compiled by IPDAP and OKBA. (Note:

these numbers were up-to-date in October 2016).

Picture No. 1: A map of concentration of suppliers of the automotive industry in Slovakia

All these companies not only significantly contribute to the overall production of the

industry sector but they also play a key part in the labor market. Volkswagen, Kia,

and PCA alone employ together approximately 20 000 people. Another

approximately 80,000 people work in the network of direct suppliers (Tier-1 + Tier-2 +

Tier-3) and approximately 11 000 work at indirect suppliers. Otherwise stated, thanks

to the trinity of car companies operating in Slovakia, this sector employs more than

111 000 people.

- 8 -

Chart No. 12: Revenues by industry in 2015

Since the most suppliers operate in the automotive industry, this group of companies generated the largest revenues in 2016. The sum of revenues of suppliers from automotive industry was 8 220 714 thousand EUR, which represents 44,89% of the total value of revenues of all suppliers of the automotive industry in 2016.

Chart No. 13: Number of companies by the type of supplier

There are 70 suppliers categorized in the Tier-1 category, 104 suppliers in the Tier-2

category, and 97 suppliers in the Tier-3 category. 61 companies were categorized as

indirect (Other) suppliers. However, we need to highlight the fact that approximately

14 companies have not yet published their results for 2016.

- 9 -

after cost of goods sold and services rendered have been deducted from revenues).

Based on the information from 2016 the gross margin reaches the level of 16%,

which is year-by-year decrease of 2percentage point.

In the case of Tier-1 suppliers, the operating margin was around 3% in 2012. In 2013

the margin was negative since the sum of operating losses was larger than the sum

of operating profits. For 2016 the operating margin reaches the level of 5%, it is

higher by 1% in comparison with years 2015 and 2014 (4%).

Return on equity reached 5% in 2016 and the return on assets reached 11%.

Suppliers in the Tier-1 category employed at the end of 2015 were approximately 39

177 people and at the end of 2016 this sample employed 46 890, which is a increase

by 7 700 employees. In 2015 the average added value per employee was 44 833

EUR. The added value is almost twice as high (1.9x) as the personal costs and the

revenues are 10.4-times as high as the personal costs of Tier-1 suppliers. In 2016

the average added value per employee was 51 526 EUR and the added value was

1.9-times as high as personal costs. The revenues were 11,4-times higher than

personal costs.

The total indebtedness (measured by the debt to assets ratio) of Tier-1 suppliers was

around 53% while in 2015 it was 56%.

Indicator 2014 2015 2016

Gross Margin 18% 18% 16%

Operating Margin 4% 4% 5%

Return on Assets 4% 5% 10%

Return on Equity 9% 11% 22%

Profit Margin 2% 3% 5%

Added Value per Employee 39 398 € 44 833 € 51 526 €

Personal Cost Coverage 1,9 1,9 1,9

Revenue/Personal Cost 10,7 10,4 11,4

Asset Turnover 1,7 1,9 2,1

Non-current Assets Turnover 4,7 4,9 5,0

Debt to Assets 55% 56% 53%

Overall Financial Indicators of Category Tier-1 Suppliers

3.2 Category of Tier-2 Suppliers

In the category of Tier-2 suppliers, 83 companies ended the year 2016 in profit, 19

companies ended up in loss. The largest Tier-2 suppliers are (among others)

Continental Matador Rubber, s.r.o., SUNGWOO HITECH Slovakia s.r.o., U-Shin

Slovakia s. r. o., ArcelorMittal Gonvarri SSC Slovakia, s.r.o., SEJONG Slovakia s.r.o.,

- 10 -

Plastic Omnium Auto Inergy Slovakia s.r.o., Hyundai Steel Slovakia s.r.o., OSRAM,

a.s. and MAGNA SLOVTECA, s.r.o.

Chart No. 19: The largest suppliers by revenue in 2015 (category Tier-2)

JOHRAmont, s.r.o. (+165,93 %), SIIX EMS Slovakia s.r.o. 203,89 %) and FTE

automotive Slovakia s.r.o. (+316,71 %) ranked among the companies with the largest

positive change in revenues in 2016 in the Tier-2 category. On the other hand,

Mecaplast Slovakia s.r.o. (-10787,81 %) and SEWS Slovakia, s.r.o. (-100,00 %)

were among those companies with the largest negative change in revenues.

Chart No. 20: The most significant changes in revenue in 2015 (category Tier-2)

- 11 -

4.2 Suppliers of the Automotive Industry in the Nitra Region

There are 45 suppliers with the seat in the Nitra Region, with Duslo, a.s.(Others)

being the largest. Its revenues in 2016 were 359 188 thousand EUR and net income

was 18 981 thousand EUR. Duslo, a.s. also belongs to the group of the largest

employers since it currently employs around 2 000 people.

Overview of the Largest Suppliers by Revenue in the Nitra Region:

The largest suppliers by revenue in the Nitra Region

Supplier Type of Supplier

Revenues in

2016

(thousand €)

Net Income in

2015

(thousand €)

Number of

employees

Duslo, a.s. Iný 359 188 18 981 2000

ZKW Slovakia s.r.o. Tier-1 354 875 14 264 2000

MATADOR Automotive

Vráble, a.s. Tier-1 148 653 4 287 1000

OSRAM, a.s. Tier-2 124 445 6 401 1000

CIKAUTXO SK s.r.o. Tier-2 73 518 5 006 500

- 12 -

5. Significant trends in the automotive industry

In this section, we summarize the main trends that can have a significant impact on

the further development of the automotive industry.

• Development of the production of hybrid vehicles and electric vehicles

All major finishers are already investing a significant amount in the

development of electric vehicles - our republic is also trying to support sales

by selling grants. Grants are enough to support the purchase of more than

1,000 vehicles, but so far, only about 300 cars have registered in the program.

The number of electric vehicles in the world has almost doubled last year.

More than a third of a million new electric cars were sold in China.

Although in absolute terms the number of electric vehicles is rising rapidly in

the total sales of all cars, they represent only a negligible share in the level of

the statistical variation (0.2%). Last year, according to data from the

International Energy Agency, they traveled around two million passengers,

with 95% of them focusing on only 10 countries in the world. These are

countries with generous state grants when buying an electric vehicle or a

hybrid vehicle

In the coming years, however, development in the field of charging stations,

battery production and changes in the specialization of some suppliers may be

expected. New opportunities for development and research, as well as for

data processing (ICT), are emerging with the development of this segment.

• Intelligent transport

Within the EU, several projects are planned and implemented to enable

uninterrupted and efficient use of interconnected vehicles and autonomous

vehicle management on TEN-T cross-border transport corridors in the border

area. Slovakia wants to contribute to the implementation of a European

strategy for deploying intelligent intelligent transport systems, which have the

ambition to use all modern technologies such as big data, artificial intelligence

and the internet of things for a totally new travel experience. The automotive

industry has considerable overhead in related industries such as materials and

mechanical engineering, power engineering, robotics and information and

communication technologies where there is a great potential for smart

transport opportunities in the following areas:

- Autonomous ride

- Vehicle interconnection in the communications network and data

exchange

- 13 -

- Drive sharing

6.Conclusion

The goal of this analysis was to provide a compact view on the automotive industry in

Slovakia using the data on carmakers and their suppliers. The analysis was prepared

from the data available on www.ipdap.sk, www.okba.sk, and www.fistat.sk which also

provide more detailed information. This material is not supposed to substitute official

and exact statistical overviews, but rather seeks to describe overall trends in the

crucial industry of the Slovak economy while using different sources including

OpenData of the state. The goal is also to provide useful information for domestic, as

well as international entities or persons interested in doing business in this industry,

such as application of G2B principles.

We believe that this publication will be a valuable source at the time when

discussions with the forth car producer are reaching their end. With its arrival the

supplier net can be dynamically developed further.